Always have money for annual costs with 'personal escrow' account

Every year in July, my bank account suddenly goes wonky as a few annual fees hit it. (One, for hosting a web site, and the other for Amazon Prime membership.) I'm barely able to recover before I'm charged my water bill (about $250 every three months) and have to pony up my portion of the Hood-to-Coast costs (my team of mamas and papas and I run a race, and vacation at the beach afterwards, every August). What a great way to spend my summer, juggling bills.

Next summer I have a better way thanks to the brilliant concept of the "personal escrow account." Much like a mortgage escrow account -- in which the bank collects a few hundred dollars a month in order to pay the annual costs of property insurance and taxes -- to run a personal escrow account, you'd estimate the annual or semi-annual bills you pay, divide them into a monthly amount, which you'd then set aside each month. Charlotte, who wrote to the excellent personal finance blog Get Rich Slowly, keeps her money in a separate bank account in order to keep it "safe" from her other expenses.

For me, here's how this would work. I'd take my annual and semi-annual costs, such as:

  • Hood-to-Coast entrance fee and my portion of gas, food and beach house: $250
  • Web site hosting: $160
  • Amazon Prime membership: $79
  • Water/sewer bill ($225 every three months): $900
  • Wall Street Journal subscription: $119
  • Other subscriptions: $60
  • Annual fees for children's activities: $250
  • Annual donations: $600
Then I'd take the total, $2,418, and divide it by 12: $202 (rounding up for safety!). I'm going to try and start this next month and let you know how it goes! The trick will be to start with enough so that I don't end up negative; I may have to let my personal escrow account grow for a few months, paying bills from my regular checking account, to have it even out.

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